Articles & Resources

Press Release
SOURCE: Weiss Ratings

Prudential Securities, Ameritrade and U.S. Bancorp Piper Jaffray Have Worst Record of Investor Abuses over Last 5 Years According to Weiss Ratings

Fidelity, Credit Suisse, and Edward D. Jones Have the Lowest Rate of Abuses of Top Firms

PALM BEACH GARDENS, Fla.--(BUSINESS WIRE)--May 14, 2002-- Of the nation's 18 most prominent retail brokerage firms, Prudential Securities, Ameritrade, and U.S. Bancorp Piper Jaffray recorded the worst record of investor abuses over the five years ending 2001, according to an analysis by Weiss Ratings, Inc., the nation's only provider of brokerage firm ratings.

Fidelity Brokerage Services, Credit Suisse First Boston, and Edward D. Jones & Co. had the best record of the top firms, with the lowest rate of abuses per customer account.

Weiss analyzed the 13,232 arbitration cases and regulatory and legal actions recorded by the National Association of Securities Dealers (NASD) against 612 brokerage firms.

The review found that 98% of the actions against firms arise from arbitration cases and regulatory violations, while the remaining two percent are composed of criminal actions, civil judicial actions, and other judgments or liens. The number of legal actions filed against the 18 largest retail brokerage firms between 1997 and 2001 were: -0-

 

Record of Abuses by Top Retail Brokerage Firms 1997-2001

Brokerage Firm

Weiss Safety Rating 

Total Arbitration Cases, Regulatory & Legal Actions

# per mil Customer Accounts

1. Prudential Securities, Inc.
B
158
72.25

2. Ameritrade, Inc.
C-
91
67.11

3. U.S. Bancorp Piper Jaffray, Inc.
B
47
64.46

4. E*Trade Securities, Inc.
B+
118
36.92

5. Raymond James & Associates, Inc.
B+
36
36.07

6. First Union Securities, Inc.
C
88
35.20

7. UBS Painewebber Incorporated
C+
87
34.80

8. A G Edwards, Inc.
A-
103
31.21

9. Salomon Smith Barney, Inc.
C
204
30.71

10. Morgan Stanley Dean Witter & Co.
B-
151
27.96

11. Quick & Reilly, Inc.
B+
34
18.89

12. Charles Schwab & Co., Inc.
B
124
16.53

13. Merrill Lynch Pierce Fenner & Smith
C-
168
16.09

14. td Waterhouse Investor Services, Inc.
B-
68
15.25

15. American Express Financial Advisors
B
19
9.50

16. Edward D. Jones & Co. LP
B+
38
8.09

17. Credit Suisse First Boston Corp.
C-
20
4.96

18. Fidelity Brokerage Services LLC
B+
43
3.74

Weiss Safety Rating A=Excellent, B=Good, C=Fair, D=Weak, E=Very Weak, F=Failed

"This analysis provides a solid, statistical basis for identifying the worst offenders," commented Martin D. Weiss, Ph.D., chairman of Weiss Ratings and author of The Ultimate Safe Money Guide. "But it's still just the tip of the iceberg. The NASD data represent only those actions reported on the firm's public record; it does not include the many investor complaints that are settled before they ever reach the NASD. It's also likely we'll see a flood of new actions in the wake of New York Attorney General Spitzer's recent revelations."

Inability to Pay Arbitration Settlements Triggers Majority of Brokerage Bankruptcies

In a recent review of brokerage firm failures, Weiss found that most were caused by the firms' inability to pay arbitration settlements awarded against them. Rather than pay up, firms often declare bankruptcy and go out of business.

The Securities Investor Protection Corporation (SIPC) covers losses due to failure but does not cover unpaid arbitration awards. Weiss advises investors to look seriously at the scope and frequency of legal actions before selecting a brokerage firm.

"Most investors focus too much on finding the broker with the cheapest commissions, but our study brings home the importance of the firm's integrity," added Dr. Weiss. "There are two risks of doing business with abusive firms: the risk of fraud or deceit, and the risk of failure when a firm is slapped with large legal costs and judgments."

Investors can learn about the professional background, business practices and conduct of NASD member firms by visiting the NASD Regulation website at www.nasdr.com.

A company-by-company analysis of this information is also provided in Weiss Ratings' Guide to Brokerage Firms, available at many public libraries. As a service to investors, Weiss now includes statistics on arbitration cases and regulatory and legal actions taken against all of the institutional, full-service, discount, and online brokerage firms that it rates.

Notable Upgrades and Downgrades
Based on its latest quarterly review of 612 brokerage firms, Weiss Ratings issued 24 upgrades and 41 downgrades. Notable upgrades include: -0-

-- Franklin/Templeton Distributors Inc.
San Mateo, Calif.
from B- to B

-- Raymond James & Associates Inc.
St. Petersburg, Fla.
from B to B+

-- Scottrade Inc.
St. Louis, Mo.
from B to B+

Notable downgrades include: -0-

-- Ameritrade Inc.
Bellevue, Neb.
from C+ to C-

-- First Union Securities Inc.
Charlotte, N.C.
from B- to C

-- Merrill Lynch Pierce Fenner & Smith
New York, N.Y.
from C+ to C-

 

The Weiss ratings are based on an analysis of a brokerage firm's capitalization, leverage, earnings, liquidity and stability. The latter category combines a series of factors including size and growth, strength of affiliate companies and risk diversification.

In addition to evaluating a company's financial stability, Weiss collects information on each firm's commission rates, services offered, and branch locations.

Weiss issues safety ratings on more than 15,000 financial institutions, including securities brokers, banks, insurers, and HMOs. Weiss also rates the risk-adjusted performance of more than 11,000 mutual funds and more than 9,000 stocks.

Weiss Ratings is the only major rating agency that receives no compensation from the companies it rates. Revenues are derived strictly from sales of its products to consumers, businesses and libraries.

Consumers needing more information on the financial safety of a specific company can purchase a rating and summary analysis for as little as $7.95 through the Weiss Ratings website at www.WeissRatings.com, or starting at $15 by calling 800-289-9222.

Note to Editors: This is the first release in a three-part series on the financial safety and integrity of the brokerage industry.

Contact:
Weiss Ratings by Yui+Co.
Ellen Yui, 301/270-8571
ellenyui@yuico.com
or
Elizabeth Kelley Grace, 561/989-9855
lizkgrace@aol.com